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TMI Blog2014 (7) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... er M/s Maytas Properties Pvt. Ltd. claimed any expenditure towards the impugned bills and if there is no double claim, the claim of the assessee has to be allowed – Decided in favour of Assessee. Expenses incurred u/s 37(1) of the Act – Supporting evidences not filed – Short deduction of TDS – Expenses not related to business – Held that:- Assessee contended that the issue may be remitted back to the file of the AO as the requisite evidence available with the assessee - since the office of the assessee has been shifted to another premises, the required information was misplaced, now it is available, which is material for deciding this issue –thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee. Reimbursement of service tax to sub-contractor – Expenses on Misplaced pending bills – Held that:- The reason for disallowing the expenditure is that the special auditor made an observation that no supporting evidence for these payments for establishing genuineness of the payment has been filed – assessee contended that the payments were made through cheques and out of total payment of ₹ 1,75,70,005/-, the DRP accepted the payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er verification, due depreciation, may be allowed – Decided in favour of Assessee. Expenses incurred on a/c of M/s. Chourasya Construction u/s 37(1) of the Act – Held that:- Assessee has fulfilled requirement of the provisions of section 37 of the IT Act - The claim of payment to subcontractor by the assessee is not disqualified for deduction under the Act - the expenditure is not a capital expenditure since the assessee did not acquire any capital asset and the payment is also not in the nature of personal expenditure and not brought any personal benefit to any employees or contractor of the assessee company - The expenditure incurred wholly and exclusively for the purpose of business – Relying upon Sassoon J. David And Co. Pvt. Limited Versus Commissioner of Income-Tax, Bombay [1979 (5) TMI 3 - SUPREME Court] - the entire payment to sub- contractor shall not be disallowed as there is evidence on record for such payment - the assessee has produced payment details and it has been subjected to tax deduction – Decided in favour of Assessee. Taxation ignoring revised estimates – Held that:- Unless and until the department has proved that agreement executed by the assessee with M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be mode u/s 40(a)(ia) – thus, there was no infirmity in the order of the DRP – Decided against Revenue. - ITA No. 1404/Hyd/2013, ITA No. 1373/Hyd/2013 - - - Dated:- 6-6-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Petitioner : Shri S. Rama Rao For the Respondent : Shri P. Soma Sekhar Reddy ORDER Per Chandra Poojari, A. M. These are the cross appeals directed against the order of Dispute Resolution Panel (DRP), Hyderabad, dated 30/07/2013 for the assessment year 2008-09. 2. The assessee has raised the following grounds of appeal: 1. On the facts and circumstances of the case the Hon'ble members of the Dispute Resolution Panel has erred in determining the total income of the Company at ₹ 1,51,38,85,432/-. 2. On the facts and circumstances of the case the appellant prays that the learned Addl CIT, under the instructions of the Learned Members of the Dispute Resolution Panel, hereinafter referred to as Learned Assessing Officer, has erred in adding an amount of ₹ 7,60,93,925/- u/s 37(1) as having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prays that the Learned Assessing Officer has erred in adding an amount of ₹ 87,62,176/- u/s 14A. The appellant prays that the addition made by the learned Assessing Officer be deleted. 11. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of ₹ 158,20.475/- u/s 37(1)/40(a)(ia). The appellant prays that the addition made by the learned Assessing Officer be deleted. 12. On the facts and circumstances of the case, the appellant prays that the Learned Assessing Officer has erred in adding an amount of ₹ 95,73,740/- u/s 92CA. The appellant prays that the addition made by the learned Assessing Officer be deleted. 3. Briefly the facts of the case are that the assessee company was incorporated originally as M/s Maytas Rajeswari Development Pvt. Ltd., on 20/05/2005, and was later renamed as 'Maytas Hill County Pvt. Ltd.' w.e.f. 28/12/2005 and as Maytas Hill County Ltd. w.e.f. 20/12/2007. Subsequently, its name was again changed as 'Maytas Properties Ltd.' w.e.f. 31/12/2007. The company was promoted by the family of Shri B. Ramalinga Raju, the erstwhile chairman of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee calculated the Arms Length Interest @1726% on the money advanced to its AE (Maytas Properties M.E. (FZE), Dubai) during the financial year, which works out to ₹ 95,73,740/-. 3.2 Subsequently, a show cause notice was issued to the assessee along with a copy of the TPO's order dated 05.10.2011, vide office letter dated 11.10.2011 by the Assessing Officer. In the show cause notice, the assessee was asked as to why an amount of ₹ 95,73,740/- should not be adjusted/disallowed u/s 92CA of the Income Tax Act, 1961 as per the order of the Transfer Pricing Officer, while computing the total income of the assessee for the subject assessment year. There was no response from the assessee to show cause notice issued. 3.3 As there is a variation in income with in meaning of section 144C(1) due to the addition suggested by the TPO vide his order dated 05/10/2011 u/s 92CA(3), the draft of the proposed order has been prepared by the AO, as per the provisions of section 143(3) r.w.s. 144C of the Income Tax Act, 1961. In the draft order, the Assessing Officer has proposed additions/disallowances on account of Corporate Tax matters also along with the addition on account of Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. 5. Aggrieved by the order of the DRP, both the assessee and the revenue are in appeal before us: ITA NO. 1404/Hyd/2013 (appeal by the assessee) 6. Ground No. 1 is pertaining to disallowance of expenditure u/s 37(1) of the Act. 7. Briefly, the facts relating to this issue are that during the proceedings before the Panel, the taxpayer has submitted that it has incurred ₹ 4,44,53,544/- in relation to advertisement, training, business promotion, architectural consultancy, land scraping, professional charges, printing and stationery, travelling and purchase of materials and since these expenses were incurred for the purpose of business the same should have been allowed. However, the AO made disallowance amounting to ₹ 3,82,34,425/- on account of the bills being in name of Maytas Properties Ltd or in the name of Maytas Properties Pvt. Ltd. and since the name of the assessee resemble its holding company, the vendors in some cases have mentioned the name of its holding company on the invoices raised by them. Since, it is a human error, the assessee pleaded that the expenditure should not be disallowed u/s. 37(1) of the Act. 7.1 The AO on the basis of the spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd are two different entities and any human error can be once or twice but not so many times covering huge payments and it is also surprising to note that the appellant had never tried to take up the issue with the vendors to correct their mistake and file the appropriate documentary evidence in support of its contention. In view of the facts stated above, the assessee's objection on this ground is rejected and the DRP upheld the proposed addition made by the AO amounting to ₹ 4,44,53,544/-. 8. Before us, the learned AR submitted that though the payment details are in the name of MPPL, which is a subsidiary company, it is accounted in the assessee's books of account and this expenditure is related to the assessee's business and there is no claim of this expenditure by MPPL. The person, who had rendered the services or supplied mistakenly mentioned the name of the party as Maytas Properties Pvt. Ltd. in stead of Maytas Properties Ltd. and it is an human error and this being so, the expenditure to be allowed in the hands of the assessee. According to the learned AR, such mistake was caused on the reason that both the names resemble. Further, he submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, the claim of the assessee has to be allowed. This issue is allowed for statistical purposes. 11. The next issue is pertaining to the disallowance of ₹ 1,75,70,005/-. 12. Briefly the facts relating to this issue are that the AO has discussed the reasons for disallowance in para 13 of his draft order. Referring' to each item of expenditure, the Assessing Officer has disallowed the same stating the following reasons: a) No supporting evidence filed, hence disallowed u/s. 37(1) b) In some cases there is short deduction of TDS c) Certain expenditure not related to business of the assessee d) Travelling charges reimbursed to others but bill raised in the name of Maytas Properties Private Limited and Maytas Hill County (P) Ltd. 12.1 The assessee's submissions before the Assessing Officer and before the DRP are the same which are as under: a) The relevant documents in support of expenditure are available with the company b) No disallowance can be made u/s. 40(a)(ia) on account of short deduction of TDS. c) All expenditure including travelling expenditure are for the purpose of business d) The bills raised in the name of Maytas Properties (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are as follows: a) The relevant documents in support of expenditure are available with the company b) No disallowance can be made u/s 40(a)(ia) on account of short deduction of TDS. c) All expenditure including travelling expenditure are for the purpose of business. d) The bill raised in the name of Maytas Properties (P) Ltd and Maytas Hill County Pvt. Ltd. are to be allowed as these expenses were incurred for business of the company. 15.2 After considering the submissions of the assessee, so far as the disallowance u/s 40(a)(ia) due to short deduction of TDS is concerned, the DRP directed the AO to delete the proposed disallowance of ₹ 26,72,773 vide S.No. 2 to 25 of page 70 of draft order. 15.3 In respect of other items of disallowance, the DRP agreed with the AO that the assessee has not filed proper supporting evidence to prove that these are allowable business expenditure and hence, upheld the addition of ₹ 1,48,97,232/- (Rs. 1,75,70,005-Rs. 26,72,773/-) 16. Aggrieved, the assessee is in appeal before us. 17. We have heard both the parties and perused the material on record. The reason for disallowing this expenditure is that the special a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,37,29,460/-, the DRP noted that the AO stated that no evidence in support of such expenditure is filed either before the Special Auditor or before the AO. The assessee's stand is that all the expenditure have been incurred for the purpose of business and the evidence is available with the company. In some cases, due to change of name, the bill has been wrongly raised in the name of other entities. The DRP held that there is no merit in assessee's claim for allowing deduction because the primary evidence was not filed before the AO for his verification. Further, it is not clarified why the bills raised in the name of other entity, Maytas Properties Pvt. Ltd., is allowable as a deduction in the hands of the assessee company. Considering the facts, particularly, the non-production of evidence before the AO, the DRP confirmed the addition of ₹ 2,37,29,460/- made by the AO. 20.2 The DRP noted that in concluding para 22.5, the AO has committed a mistake by not reducing an amount of ₹ 46,33,163/- from total expenditure of ₹ 2,83,62,623/-. The AO has also not reduced ₹ 49,16,757/- because ₹ 49,16,757/- has already been added by the AO in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 40(a)(ia) of the IT Act in case of short deduction of tax due to bona-fide wrong application of tax provisions. In that case, the assessee deducted tax @1% u/s 194C(2) of the IT Act being payment made to sub-contractors. However, revenue contended that payments are in the nature of machinery hire charges falling under the head 'rent' u/s 194I of the Act and therefore, tax was deductable @ 10%. Since TDS deducted at short and also under the each head the department disallowed proportionately by invoking provisions of 40(a)(ia) of the Act, it was held that there is nothing in the said section to treat, inter-alia, tax payer as defaulter where there is a shortfall in deduction. With regard to shortfall, it cannot be assumed that there is a default as deduction is not made as required by or under the Act. Section 40(a)(ia) refers only deduct TDS and pay to the Government Account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of deduction falling under various TDS provisions, the tax payer can be declared to be an assessee to be default in u/s 201 of the Act and no disallowance can be made by invoking provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed ₹ 2,04,08,005/- u/s. 40A(3)/37(l). 26. Before the DRP, the assessee has reiterated the above argument advanced before the Assessing Officer. According to the assessee, it has incurred the expenditure by way of purchase of nursery plants from farmers and in few cases red soil and pesticides. The payment has been made through bearer cheques. Since payment is made to farmers, sec. 40A(3) is not applicable. Further, regarding deficiencies in bills as pointed out by the Assessing Officer, the assessee submitted that the vendors are small nursery owners who do not maintain any prescribed books of accounts and documents. These persons are also not registered with any VAT or Excise Authorities. Therefore, the expenditure should be allowed u/s. 37(1) as these are genuine business expenditure. 27. After going through the details, the DRP observed that the entire expenditure booked under landscaping consists of expenditure towards purchase of nursery plants and in a very few cases for purchase of red soil and pesticides. The assessee had not disputed the fact of self generated bills without any serial number, VAT number, etc. It is also observed that most of the vouchers h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance if the assessee incurred the expenditure by cheque. Thus, this ground is partly allowed. 31. The next ground is with regard to the addition of ₹ 53,698,655/- on account of notional interest applied on business advances @ 10.50% to group and other associates. 32. Briefly facts relating to this ground are that the special auditors in their report have pointed out that the company gave loans and advances to land owning companies and other companies to which it is related and when a query was raised, the assessee stated that the loans and advances account mainly consists of advance given to Maytas Infra Ltd for mobilisation work to be adjusted against running account bills and also for acquiring land and development rights which is part of company's business and it has also got advances of ₹ 487 crores received from the customers against sale of the villas and apartments and stated that as per the decision of Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 as long as the assessee is having interest free funds, there is no necessity to establish the nexus between the interest free advances and loans advanced. 32.1 Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and need to be treated as related parties. The Assessing Officer has rightly added the interest receivable from the MIPL (HO) which the assessee failed to offer. 32.3 Therefore, DRP was of the opinion that the AO has rightly added notional interest on account of interest bearing funds being diverted to the third parties which included related and 'unrelated' parties, to the total income and the proposed disallowance of ₹ 5,36,98,655/- was confirmed. Against this, the assessee is in appeal before us. 33. Before us, the learned AR relied on the following case laws: 1. SA Builders Vs. CIT(A) Anr., 288 ITR 1 (SC) 2. CIT vs. Tulip Star Hotels Ltd., 338 ITR 482 (Del.) 3. CIT vs. Reliance Communication Info. Ltd. 260 CTR 159 (Bom.) 4. DCIT vs. Monsanto Holidays Pvt. Ltd., 134 ITD 189 (Mum.) 5. Pranik Shipping Serving vs. ACIT 135 ITD 233 (Mum.) 6. Gupta Global Exim Pvt. Ltd. vs. Addl. CIT, 135 ITD 164 (Rajkot) 33.1 The AR submitted that there is fund received from share capital, unsecured loans, advance received from the contractor, interest free advances received by Assessee and convertible debentures and being so, there cannot be any dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. The Assessing Officer accordingly disallowed depreciation on the investment amounting to ₹ 10,10,475/-. 37. After examining the objections raised by the assessee, the DRP held that the Assessing Officer has given a categorical finding that bills and vouchers were not produced in respect of the assets mentioned in para 14 of the draft order. Since, details are not filed, the DRP held that the Assessing Officer is justified in disallowing the depreciation of ₹ 10,10,471/- . The disallowance is accordingly upheld by DRP. Against this, the assessee is in appeal before us. 38. We have heard both the parties, perused the record and gone through the orders of the revenue authorities. We find that the assets are appearing in the balance sheet of the assessee company and there is only a mistake in the bill with regard to name of the company. As held in earlier para 10 of this order, the issue is remitted to the file of the AO and after verification, due depreciation, may be allowed. This ground is allowed for statistical purposes. 39. The next issue is with regard to disallowance of ₹ 40,583,808/- u/s 37(1) on account of expenditure incurred on a/c of M/s. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act document is in two volumes and filed copies of the two volumes. On verification of the documents, it is noted that it is nothing but a general tender document for the entire High Rise Building and it is also noted by DRP that the agreement has not been witnessed by anybody. As per the submissions filed before the AO and also before the DRP that M/s.Chourasia Construction Co. was a small time contractor based in Bangalore and it has been entrusted with the contract of excavation, refilling, anti-termite treatment etc. whereas the copy of agreement (dated 16.8.2007) along with the contract details given in the general tender document shows that the agreement was for the construction of High Rise Building and the account copy filed further shows that the works done were reinforcement of cement, concrete and reinforcement of steel works. The inconsistencies in the agreements of the assessee clearly shows that the claim of the contract payments made to M/s. Chourasia Construction Co. is not a genuine claim. The argument that it made payments and tax was deducted at 'source be considered can be considered only if the transaction as such is genuine and in the present case as obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht any personal benefit to any employees or contractor of the assessee company. The expenditure incurred wholly and exclusively for the purpose of business. It was held in the case of Sassoon J. David, 118 ITR 261 (SC) by the Apex Court as under: In the instant case it is necessary to bear in mind that the company was neither dissolved nor was its business undertaking sold. It continued to exist as a juristic entity even after the transfer of its shares. On account of such transfer of shares, the transferees no doubt gained control of the company. But one important fact of the case was that neither the transferor nor the transferee derived any direct benefit out of the payment of retrenchment compensation to the employees even though such retrenchment might have facilitated the transfer of shares. It is also not the case of the Department that the payment was excessive. That there was a substantial reduction in the wage bill in the future years as a consequence of retrenchment was also not disputed. It is too late in the day to treat the expenditure incurred by a management in paying reasonable sums by way of gratuity, bonus, retrenchment compensation or compensation for termin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Such expenditure may be incurred voluntarily and without any necessity and it is incurred for promoting the business and to earn profits, the assessee can claim deduction even though there was no compelling necessity to incur such expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) if it satisfies otherwise the tests laid down by law. In the instant case, it was the case of the company that many of the employees were old and superfluous and the business could be carried on with a smaller number and the only way in which they could reduce the number was to terminate the services of all the employees by paying them compensation and thereafter reemploying some of them only. If the company felt that was a method which would enure to its benefit, it cannot be said that the payment of compensation was made with an oblique motive and without regard to commercial consideration or expediency. Hence, amount paid to directors and employees is allowable as a deduction. Further, it is also noticed that the dispute went before the Court and MOU was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in using the latest estimates of project cost is as per the generally accepted accounting principles (GAAP) in India. Accounting Standard 7 (AS 7) relating to accounting for 'Construction Contracts' issued by the Institute of Chartered Accountants of India (lCAI) clearly states that accounting for revenue from construction contracts under the 'Percentage of Completion' involves use of estimates. Para 37 of AS 7 clearly states that the estimates to be considered for the purpose of recognition of revenue on 'Percentage of Completion' method, the latest estimates are to be used. It also stipulates accounting for the change in estimate of total project cost as a change in accounting estimate to be disclosed in the financial statements (refer annexure 7). Hence, the accounting treatment adopted by the assessee is in line with the GAAP in India. The same has also been accepted by the statutory auditors of the assessee. Hence, the Id.AO has erred in considering the estimates of total project cost of A Y 2007-08 for determining the revenue for A Y 2008-09. Hence, the addition of income is liable to be deleted. The AO stated in the draft order that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly in those years. To evidence the accounting of the income in subsequent years, the assessee has attached herewith a summary of year-an-year cumulative revenue recognized as against cumulative construction cost incurred up to that year (refer annexure 8) The cumulative revenue recognized up to FY 2012- 13 clearly evidences that the revenue sought to be taxed by theld.AO in AY 2008-09 has been recognized in subsequent years in accordance with the GAAP in India. It is therefore respectfully submitted that the additions to the income of the assessee are not required since the income is being offered to tax in subsequent years by the assessee itself. 45.1 After perusing the report of Special Auditor and explanation of the assessee company, the DRP held that the proposed addition is based on the special audit report which has been accepted by the A.O. The assessee's objection is only on one issue. While computing revenue for the year FY 2007- 08, following percentage completion method, the assessee has taken total estimated project cost at ₹ 584.72 crores whereas according to the A.O. and special auditor, it is ₹ 437.33 crores. The assessee has adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the amount of revenue and recognized in the statement of profit and loss in the period in which the change is made and in subsequent periods. 45.4 The DRP observed that the assessee can adopt a high estimate due to increase in cost of input. This need not always be matched by increase in revenue or increase in saleable area. The estimation is to be made on proper appreciation of facts and terms and conditions set out in the agreement between the developer and contractor. Such costs are to be allocated using methods that are systematic and rational. Coming to facts of the case, the assessee company developed Maytas Hill County Project. The project was to be executed by the Contractor, M/s. Maytas Infra Ltd. (MIL) for an estimated cost of ₹ 410 crores as per agreement dated 4.2.2006. MIL was a sister concern under the same management. 45.5 As per para 1.11.0 of the terms of this agreement the contract value' shall mean the sums stated to (in order of the precedence) in the agreement (if any) or the letter of intent or the final offer letter or duly accepted by the contractor and the sub contractor subject to additions or deductions their form as may be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual drawings received from architects and partly to comply with govt. Regulations and not on the basis of invoice for purchase of materials by the sub contractor. The effect of this change in specification on saleable area or on revenue estimate has not been explained by the assessee. Further, the details justifying the increase in project cost have not been filed before the special auditor or before the A.O. Both parties i.e., developer assessee and contractor are controlled by same management. In absence of details, the increase appears to be more of convenience between two related parties contrary to the accounting principle. DRP was of the view that the assessee company failed to substantiate the increase in estimation of construction cost. 45.9 There is objection regarding percentage of completion of project exceeding 100% which is not possible under any circumstance. This objection relates to completion independent homes. Since the estimation of cost and revenue covers the entire projects which includes independent home, apartments and other company asset, this objection is not accepted by DRP. 45.10 In view of the above, the DRP held that the A.O's action of re- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax liability. There is no basic deviation in the method of accounting followed by the assessee regarding recognition of income. Being so, the AO cannot dispute the profit of the assessee by observing there is a flaw in the method followed by the assessee. Further, merely because assessee was following mercantile system of accounting, it could not be held that income had accrued to it as estimated by AO. Earning of the income, whether actual or notional, has to be seen from the viewpoint of a prudent assessee. If in given facts and circumstances the assessee decides to change the budget in order to safeguard the business, it cannot be said that it has acted in a manner in which no reasonable person can act. The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. Non-recognition of income on the ground that the income had not really accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concerned parties so as to transfer the title in the property. Till such time, it cannot be said that the parties involved in are ready to perform the contract. In the present case, neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration. When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is identified. The proposed sale agreement cannot be put into action due to various litigations pending with various courts. Nobody can transfer title in a property when the property is not in existence. More so, when there is litigation pending on the same property and no profit can be anticipated when the agreement itself is subject matter of litigation. It is not possible to bring the same to tax. We have to see all surrounding circumstances to decide accrual of income to the assessee. Looking at the prevailing circumstances in the present case, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any immovable property by a written contract, the terms of which constitute the transfer and can be ascertained with reasonable certainty and the transferee as part performance of the contract has taken the possession of the property and has performed or willing to perform his part of contract, then even the said contract though required to be registered has not been registered and the transfer has not been completed in the manner prescribed therefore by law, the transferor is barred from enforcing against the transferee any right in respect of the property other than the right expressly provided by the terms of the contract. Under the IT Act, 1961 by inserting cls. (v) and (vi) of s. 2(47), the definition of the term transfer includes the transaction which fulfils the conditions provided under s. 53A of Transfer of Property Act. Therefore, s. 53A of the IT Act, 1961 (sic-Transfer of Property Act) is borrowed only with respect to the transfer of capital asset as provided under s. 2(47) of the IT Act, 1961 and the same is not applicable in other cases which do not fall under s. 2(47) of the IT Act, 1961. Sec. 45(1) of the IT Act, 1961 deals with the profit and gain arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he development agreement which transfers the title of the property to the developer. In the absence of the transfer of the title of the property and any consideration at the time of development agreement, the handing over of the possession was merely a temporary measure for carrying out the construction work by the developer and the exclusive possession of the property in legal sense remains with the assessee which was finally handed over at the time of execution of the sale deed of the constructed flats by the assessee. One cannot presume any intention in executing the documents between the parties other than what was stated or can be inferred reasonably from the documents itself. A regard must be given to the words used in the documents. The nature of the transaction between the parties by way of development agreement cannot be said to be a sale of immovable property which is stock-in- trade or otherwise transfer as provided in the Transfer of Property Act. We agree with the contentions of the learned Authorized Representative of the assessee that the meaning of the words, otherwise transferred , in s. 45(2), should be according to its ordinary popular and natural sense, and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above discussion, we hold that the orders of the lower authorities, qua this issue are not sustainable on the facts as well as on law. We set aside the orders of the lower authorities, qua this issue and direct the AO to tax the capital gain arising from the conversion of the land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-use and corresponding business income was offered. (b) B.L. Subbaraya vs. DCIT, 9 SOT 297 (Bang) wherein the Bangalore Bench of the Tribunal held as under: 8. The fact which is undisputed is that the entire settlement is still a subject-matter of dispute being sub judice and there is no finality attained even during the year under consideration. This is clear from the following facts. Subsequent to the deed of settlement between the assessee and Smt. Sundari Ramachandran on 9th Aug., 1997, the disputes arose on its implementation. The assessee filed a company petition against M/s Electronics Controls Power Systems (P) Ltd., under s. 433 of the Companies Act, 1956, seeking winding up for its failure to pay the dues to the assessee. Incidenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardship no interest was paid by the owner to the assessee company on its deposit at the rate of 12 per cent per annum of the same amount. It is undisputed fact that the assessee had paid the amount of ₹ 99.90 lakhs as on 31st March., 2003, but no interest was paid to the assessee because the project was legally not feasible and due to legal restriction the whole amount invested might not have been realized in the said project. Accordingly, the owner did not make any payment to the assessee. Under the facts and circumstances, the assessee cannot be subjected to be taxed on notional income. There is nothing on record, to suggest that any such interest income was materialized. The assessee has pointed out that because of non-availability of FSI on the said plot of land for which the assessee had entered into development agreement with M/s Arora Builders (Sukhmani Construction), the assessee company could not develop the said property in view of the statutory restrictions and, therefore, the whole project has become unviable to continue. Hence, no interest had accrued to the assessee in the year under consideration. Accordingly, the addition of ₹ 4,99,260 is directed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -recognition of income on the ground that the income had not really accrued as the realisability of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government E) It is one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. F) The provisions of section 145(1) are subject to, inter alia, mandate of AS-1 which also prescribes that 'Accounting policies adopted by an assessee should be such so as to represent a true and fair view of the state of affairs of the business, profession or vocation in the financial statements prepared and presented on the basis of such accounting policies'. In the name of compliance with section 145(1), it cannot be open to anyone to force adoption of accounting policies which result in a distorted v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce by the AO is justified. However, the alternate claim of the assessee that there was double disallowance has been verified with reference to the order u/s. 154 of IT Act passed for AY 2007-08 (a copy of which has been filed by the assessee), wherein the Assessing Officer had disallowed ₹ 1,56,23,944/- out of ₹ 2,33,24,429/-. In view of the above, the DRP held that since addition of ₹ 1,56,23,944/- again in this year amounts to double disallowance, the disallowance for this year is restricted to ₹ 77,00,485/-. 51. Aggrieved, the assessee is in appeal before us. 52. We have heard both the parties, perused the record and have gone through the orders of the authorities below. The contention of the assessee is that it is a revenue expenditure or otherwise if the expenditure is reduced to that extent, proportionate income to be reduced from P L Account as the income generated from that expenditure is offered to tax. If this income related to this expenditure has gone to the P L A/c, we direct the AO to allow proportionate expenditure. Accordingly, this ground is partly allowed. 53. Next ground is with regard to the disallowance of ₹ 91,25,431/- u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd both the parties, perused the record and gone through the orders of the authorities below. As held by the Delhi High Court in the case of CIT vs. Rajinder Kumar in Income Tax Appeal No. 65/2013 dated 1st July, 2013, the impugned amendment to section 40(a)(ia) which permits remittance of TDS to the Central Government account on or before the due date of filing return of income u/s. 139(1) of the Act is retrospective in nature. Same view has been taken by the jurisdictional High Court in the case of CIT vs. PEC Electricals Pvt. Ltd., in ITA No. 263 of 2013 dated 12.7.2013. Further, the Cochin Bench in the case of Antony D. Mundackal Vs. ACIT in ITA No. 38/Cochi/2013 vide order dated 29/11/2013 for AY 2009-10, held as under: 7. We have heard the rival contentions and carefully perused the record. According to the assessee, there is no written contract between him and the persons doing polishing works. Accordingly, the assessee has contended before us that the provisions of sec. 194C shall not apply to the polishing charges. However, we notice that the assessing officer has given a clear finding that essential ingredients of a contract are very much available in the polishing wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake any difference. 7.2 The Ld Counsel, by placing reliance on the decision of special bench in the case of Merylin Shipping and transports (supra) contended that the provisions of sec. 40(a)(ia) shall apply only to amount payable and not to the amount paid. However, the Hon'ble Gujarat High Court in the case of CIT Vs. Sikandar Khan N Tunvar (357 ITR 312) and the Hon'ble Calcutta High Court in the case of CIT Vs. Crescent Export Syndicate (ITAT 20 of 2013) have held that the decision rendered by the Special Bench in the case of Merylin Shipping Transports is not a good law. The Ld AR, however, placed reliance on the decision of Hon'ble Allahabad High Court in the case of Vector Shipping Services (357 ITR 642). On a careful perusal of the decision given by Hon'ble Allahabad High Court, we notice that the High Court has decided the issue referred to it on a different footing and has made a passing comment about the decision rendered by the Special Bench. Thus, the ratio of the said decision is different from that rendered in the case of Merylin Shipping and Transports by the Special bench. Hence, we are inclined to reject the contentions of the assessee on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riefly the facts relating to this ground is that this issue is discussed in the draft assessment order at para 21. The Assessing Officer found that certain journal entries were made against Maytas Infra Pvt. Ltd. which was claimed as expenditure and no TDS was deducted u/s. 194C He rejected assessee's contention that tax is not deductible on these and accordingly disallowed the amount of ₹ 8,55,911/- u/s. 40(a)(ia). 58.1 Before the DRP, objection raised before Assessing Officer is reiterated by the assessee. The DRP held that since the amount is claimed as an expenditure, the assessee was required to deduct TDS as per the provisions of see. 194C even if the claim is made through a journal entry. Since TDS was not deducted, Assessing Officer is justified in making disallowance u/s. 40(a)(ia). Therefore, the proposed addition of ₹ 8,55,911/- is upheld by DRP. 59. Aggrieved the assessee is in appeal before us. 60. This ground is similar to the earlier ground in paras 53 to 56.2, therefore, following the decision therein, we remit the issue to the file of the AO with identical directions. 61. Next ground is pertaining to disallowance of expenditure amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be disallowed. 63.2 The DRP held that the AO has clearly stated that the contention of the assessee is not acceptable in view of the fact that the interest expenses incurred on loans taken from various financial institutions which were subsequently invested in mutual funds and is therefore squarely covered u/s 14A. Since the AO has recorded his satisfaction that the assessee incurred expenditure for earning exempted income and followed the method/formula prescribed as per section 14A read with Rule 8D, the proposed disallowance of ₹ 87,62,176/- is upheld by DRP. 64. Aggrieved the assessee is in appeal before us. 65. We have heard both the parties, perused the record and have gone through the orders of the authorities below. This issue is similar to the issue discussed in paras 31 to 34 of this order, hence following our finding in para 34 of this order, this ground is allowed. 66. Next ground is pertaining to disallowance of ₹ 1,58,20,475/- u/s 40(a)(ia) on account of non-deduction of taxes on bonus provision payable to employees. 67. Since the assessee has not produced copies of evidences, viz., copy of TDS return showing details of TDS payment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investment made/to be made in the said WOS. And hence, the contention that it has got the approval from RBI to invest in the share application money in the WOS and thereby no TP analysis can be made in respect of the transaction in question has no merit. As rightly pointed out by the TPO, the role of the RBI is management of forex governed by FEMA and it does not e transactions pertain to loans or equities or whether they comply Arms Length principle or not. 70.2 The DRP observed that the contention that the TP analysis does not apply to investment in equity is also without any basis because the appellant has failed to show that the nature of the amount in question was equity not loan during special audit, TPO proceedings and during the proceedings before the Panel. Even while submissions filed before the Panel vide submissions dt. 5-2-2013 also, it was submitted that Maytas, Dubai is in the process of allotting shares to the assessee against the application money received in the F.Y 2007-08 and that means even after four years also the funds are parked with the AE which is nothing but a loan transaction and this has been diverted to the AE out of interest bearing funds of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive years or more at 17.26%. It is noted that the advancement of the said amount to the AE is not supported by any guarantee or collateral and is therefore a very high risk transaction. Therefore, we are of the opinion that the TPO has correctly applied the rate of yield applicable to corporate bonds on the basis of CRISIL rating for computation of ALP. 70.5 In view of the facts stated above, the assessee's objections raised at ground nos. 1,2 3 were rejected and TPO's order was upheld and upheld the action by the DRP. 71. Aggrieved, assessee is in appeal before us. 72. We have heard both the parties, perused the record and have gone through the orders of the authorities below. Similar issue came up for consideration before this Tribunal in the case of Vijay Electricals Ltd. Vs. Addl. CIT, [2013] 36 Taxmann.com 386 (Hyd.-Trib.) wherein it has been held as follows: 10. We have considered the rival submissions, perused the record and have gone through the orders of the authorities as well as decisions cited. In our opinion, the amount representing ₹ 2118.84 crores is towards investment in share capital of the subsidiaries outside India as the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a shortfall due to a difference of opinion, the tax payer may be treated as a defaulter u/s 201 but no disallowance can be mode u/s 40(a)(ia). Similar view has been held in following judicial precedents: Chandabhoy Jassbhoy (Infra) Teja Constructions Vs. CIT (Infra) K.Srinivas Naidu Vs. Ass/. ClT (Infra) Jaipur Vidyut Vitran Nigam Ltd. VS.DCIT (Infra). Further, the special bench of the Visakhapatnam bench in the case of Merilyn Shipping Transports (Infra) has held that the disallowance u/s 40(a)(ia) of the Act is not applicable to the amounts already paid, and that the disallowance should be restricted to amounts payable as on the year end. In the instant case, as the amounts had already been paid by the assessee, the provisions of section 40(a)(ia) of the Act would not attract. 75.2 In course of the hearing before the DRP, the assessee has filed written submission in support of the above objection which is reproduced below: Development agreement is a Contract for work and not a Joint Venture agreement The assessee wishes to respectfully submit that the Development Agreement (DA) entered into by the assessee with the Land Owning Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person to whom withholding provisions u/s 194C of the Act apply in relation to the AFC, the same constitutes the principal contract for work u/s 194C(1) of the Act. The contract of the assessee with MIPL, being a sub-contract arising out of the AFC, is liable for tax withholding only under section 194C(2) of the Act. It is submitted that the Company has already deducted and remitted tax required us 194C(2) of the Act. Hence, there is no violation and no disallowance is liable to be made u/s 40(a)(ia) of the Act. Where the buyer is not liable to deduct tax u/s 194C(1) of the Act. Provisions of Section 194C(1) of the Act are not attracted where the payee is an individual or a HUF which is not subjected to tax audit u/s 44AB of the Act. Since a majority of the buyers are persons to whom the provisions of Section 194C do not apply, the principal contract, i.e., the AFC does not fall within the purview of the provisions of Section 194C(1) of the Act. Consequent to the non-applicability of provisions of section 194C to the principal contract i.e., the AFC, the sub-contract agreement entered into with MIPL does not attract tax withholding provisions u/s 194C(2) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in respect of payments to be made to MIPL, no disallowance u/s 40(a)(ia) is warranted on the same. 1.4 Disallowance u/s 40(a)(ia) to be proportionate to the extent of short deduction. Without prejudice to our earlier submissions, it is submitted that the disallowance u/s 40(a)(ia), if any, is to be restricted only to the extent of short deduction of taxes. The above contention has been upheld by the Hon'ble ITAT in the case of DClT Vs. Beekaylon Synthetics Ltd. (ITA No. 6506/M/08). Hence, disallowance in respect of amounts payable to MIPL, if any, is to be restricted to the extent of short deduction of taxes. 1.5 Amount disallowed u/s 40(a)(ia) to be allowed when default is made good by the payee. Without prejudice to our earlier submissions, it is submitted that where there is a default in withholding taxes, if the payee subsequently pays taxes on the amounts received by him and makes good the default, the payer is to be granted a deduction in respect of the amounts for which the default is made good. This is by virtue of the amendment brought in by the Finance At 2012, to section 40(a)(ia) and section 201 of the Act. It is submitted that such amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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